Companies Can’t Avoid Politics — and Shouldn’t Try To

Executive Summary

Companies used to avoid political issues at almost any cost. But those still relying on a strategy of abstention and neutrality are quickly learning that it no longer works the way it once did. How can companies engage without alienating customers? The key lies in understanding the psychology that shapes responses to corporate political activities. When a company makes a statement on a political issue, the responses of stakeholders can be idiosyncratic, but some themes arise again and again. Here is what stakeholders look for: transparency; consistency; a business case for activism; and leadership.

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Companies used to avoid political issues at almost any cost. But those still relying on a strategy of abstention and neutrality are quickly learning that it no longer works the way it once did. Sometimes it leads to more harm than good.

Consider Delta Airlines. After a horrifying school shooting in Parkland, Florida put companies’ relationships with the National Rifle Association (NRA) under a microscope, Delta joined more than half a dozen major companies by eliminating a discount program for NRA members. It released a statement explaining that the decision “reflects the airline’s neutral status in the current national debate over gun control.”

But lawmakers in Delta’s home state of Georgia didn’t see it that way. They voted down $50 million in fuel tax exemptions for Delta as retaliation for its “attack” on conservatives. Ironically, the discount had only been claimed by thirteen of Delta’s customers!

Even when a company tries to be neutral, politics can drag it back in.

We have no inside knowledge of how Delta came to its decision, however its original decision and recent statements suggest that it views politics and business performance as incompatible. The prevailing view among practitioners is that anything short of a neutral position on a political issue will alienate customers and thereby put relationships with up to half of its customers in jeopardy.

This sort of either/or thinking sounds all too familiar to scholars who specialize in corporate responsibility, as we do. It was not so long ago that executives spoke in similar ways about charitable giving or environmental initiatives. The logic went that resources allocated to philanthropy or other social initiatives meant fewer resources for research & development, marketing, or manufacturing capabilities.

Now, of course, we know that there is no inherent tradeoff between social and financial performance. The two can be mutually reinforcing. A virtuous cycle between social and financial performance is especially strong when it helps to deepen relationships with customers, employees, investors, or other stakeholders by helping them understand the values and motivations of the company.

That makes sense for a corporate responsibility initiative such as feeding the hungry, which everyone can agree on. But in a world where political opponents grow further apart and increasingly antagonistic towards one another, it may be hard to imagine how taking a political stand could not alienate customers.

The key lies in understanding the psychology that shapes responses to corporate political activities. When a company makes a statement on a political issue, the responses of stakeholders can be idiosyncratic, but some themes arise again and again. Here is what stakeholders look for.

Transparency. Strong relationships between companies and stakeholders are based on trust. And trust requires a degree of openness and transparency. People are surprisingly accepting of a company’s political viewpoints as long as they believe that it is being forthright. For example, Chick-fil-A is by all accounts an openly conservative company, fueled in part by religious convictions. When CEO Dan Cathy inadvertently disclosed his views on gay marriage in 2014, there was some protest. However, the long-term consequences appear to have been minimal in part because Chick-fil-A has always been open about its conservative slant.

Consistency. Stakeholders prefer companies that are predictable. When a company makes sudden changes to its procedures or identity, it can raise red flags, especially with consumers for whom reliability is essential. In the political realm a company needs to be consistent in its political messages over time. For years, Patagonia has been vocal about environmental legislation. By the time President Trump announced in late 2017 that he would eliminate federal protections for two national monuments in Utah, Patagonia had already set a track record. Stakeholders would have been surprised and disappointed had Patagonia notopposed Trump’s executive order, which it did aggressively.

Materiality. Some executives worry that speaking out on political issues that are linked to performance will be perceived as rapacious. However, research shows that consumers expect companies to be driven in part by profits. Rent-seeking is not only tolerated, but admired, so long as a company is transparent, consistent, and shows leadership in its industry. For this reason, Airbus is likely on solid ground when its CEO spoke against protectionism and Brexit as threats to corporate performance.

Leadership. Stakeholders like to purchase from, work for, and invest in companies that have social and environmental impact. A knee-jerk reaction for many companies is to shun the political spotlight, sometimes by shifting attention to trade groups or by waiting for peers to make the first move. However, companies that are transparent, consistent, and can make a business case for political positions are sometimes better off standing out in the crowd. Political stands can become a point of real differentiation for a company. Microsoft is an example of a company that took a leadership position on the Deferred Action for Childhood Arrivals (DACA) policy. It was among the most visible supporters of so-called Dreamers, vowing to pay legal bills for employees brought to court, and urging the U.S. Congress to tackle immigration reform before taxes. Such leadership appears to have put it in a position of strength, not weakness.

While it is praised in many quarters for taking a stance, Delta might well have missed a leadership opportunity by asserting a position of neutrality, especially if it could have potentially rallied other companies to join it in questioning the NRA’s blocking of gun reform.

Fifteen years ago, one of us (Smith) suggested that corporate responsibility was no longer a question of “whether” to engage, but “how” to do so. We face a similar turning point today when it comes to making public political statements. The days when companies could uniformly stay on the sidelines are probably over. Today’s political environment requires engagement on at least some issues.

This is not to say that companies should engage every time that a political issue comes up. We simply advise companies to choose issues a priori that fit with the values and goals of their business.

Clearly, our often-divided political environment poses some danger for companies. But executives who wish to respond fully to the needs of their stakeholders will need to embrace the new reality if they hope to succeed. It’s time to stop treating political issues as a third rail.

Daniel Korschun is the Stephen Cozen Research Scholar in Marketing and an associate professor at LeBow College of Business at Drexel University.

N. Craig Smith holds the INSEAD Chair in Ethics and Social Responsibility at INSEAD in Fontainebleau, France.